Kalistan

[Doc]

Editorial: Kalistan must not fall for Cryptocurrency
Market based "solutions" only ever just create problems
Sulari, Duchy of Suldanor
August 15, 5690


The math of cryptocurrency, like all other market-based ideas, doesn't add up

Note from the Editor: This article was inspired by news of a new environmentally based cryptocurrency issued by the Empire of Istalia. We wish to preface the article by stating that this is not contra to that idea specifically, but is being written against cryptocurrencies in general. We sincerely wish Istalia well with their experiments, though, as economic nationalists, we cannot say we have much optimism.

Kalistan must not fall for Cryptocurrency

In light of world developments, and in my position of Editor of The National, I'd like to take this opportunity to compose a brief paper arguing that Kalistan should not adopt Cryptocurrency. I would like to immediately dispel any notion that this is an unbiased, balance academic paper that presents the results of scientific investigation. As editor of the Paper, I am more of a technician than anything. I am certainly not an academic, nor am I an economist. However, I am an ardent Kalistani Nationalist and I think this position reflects the position of my magazine's readers, and should resemble a position familiar to economic nationalists world wide.

Kalistan ought to avoid Cryptocurrency schemes because it puts the value of the currency into the market and outside of the control of the Central Government. So-Called market based solutions only ever create problems when vital state operations, like backing a medium of exchange, are subjected to the forces of interested individuals making individually rational calculations. This undermines all manner of the state's ability to utilize its national institutions to resolve social problems, like poverty, hunger and un- and under employment. It further puts both the national currency and the investment community at the mercy of foreign investors. It opens the system to corruption and lack of transparency, and ultimately undermines National Interests. Therefore, Kalistan should not fall for Cryptocurrency schemes: In fact, we would take the additional step of advocating that the National Government to fully ban all cryptocurrency in Kalistan.

Before we get into this argument, allow me to present an analogy. We are all familiar with the trope of a crowded theater on fire. I'm changing the analogy because I am fairly confident that people do not simply yell "fire" in a crowded theater, and so that event is quite beyond belief and is obviously dangerous to public order. But lets suppose the theater is actually on fire, a far more realistic scenario. This situation introduces a logical paradox: In the attempt to save one's life, the most rational thing to do is to rush as fast as you possibly can to the exit to escape roasting to death in a theater. Problem is: there are several thousand other people all thinking the same thing at the same time and the result is only a handful ever actually escape while the vast majority, prevented from escape by the individuals in front of them who are clogging the doorway.

This paradox, in doing the individually rational thing, we often create collective irrationality, is magnified at the National level, where we see individual actors, always acting in their own interests to serve their own individual needs and wants, ultimately destroying the systems that provided them the means to pursue their own ends in the first place. At the national level we call it the tragedy of the Commons, and it explains why an unregulated system, under the sway of rational egoism, will always contain within itself the seeds of its own demise. The Capitalists themselves know this as well as the nationalists. Liberal economists and philosophers alike have warned since the beginning of their theoretical perspective about how, despite their desire to remove the government because it acts as a brake on rational self interest, it was nonetheless still important to have a neutral judge overseeing the entire system to prevent individuals from abusing the system to everyone's detriment.

And yet, its liberals also that call the market "self-regulating": they argue that individual rational self interests cancel each other in the system, but this is premised on the assumption that all individual rational self interest is a) identical in weight in the calculus, and 2) identical to one another. What is rational and beneficial to me is what any reasonable person would also see as rational and beneficial to themselves, because there is only one "rationality". And further more, my rational self interest as a CEO of a major corporation holds the same exact weight in any discussion about wages as the rational self interest of any one worker, or any 3000 workers. "We all want the same thing and we are all equally able to pursue that in a correctly ordered economy," argues the liberal. Any worker who has ever been on strike, or any individual priced out of their home by a bunch of gentrifying yuppies in a suddenly trendy neighborhood will tell you that is a lie.

And yet, these same deeply flawed assumptions lie at the heart of the cryptocurrency concept. We can say its a scheme, for sure, or it has become one, because while the idea is extremely democratic at its core: All investors who have the ability to understand blockchain can see just how much of a cryptocurrency has been "mined" or published or released or however you would like to describe it, how much is outstanding and how much is in the possession of investors at any given time, and therefore can know the value of any one cryptocurrency, and should be able to easily make sound investment decisions based on that public ledger. Sure, wonderful. Democracy. Yay. In Istalia's plan, its supply will be based on compliance with environmental goals, but really, it could be just based on math really. Nothing against Istalia's scheme, but you could arrive at the same place by not tying it to environmental goals, but ironically linking it to environmentally destructive practices instead like building massive data centers that waste huge amounts of energy and resources just to mine the token.

But that's not exactly how valuation is determined, is it? Let's be completely honest about this. Crypto valuation is based on speculation: Not how much its worth now, but how much it will be worth soon. If we bet it will be worth more soon, we invest in it. Supply and demand being what it is, the valuation goes up. If we feel its not going up as fast as we want it too, we'll pull our investment out and put it else where. Supply and demand etc, and the value drops. It has nothing to do really with how much of it is there. And at any rate, who cares how much is there? It doesn't have any inherent value in and of itself: The market determines its value. It's not even a real thing: it's just a token in an online public ledger somewhere.

Cryptocurrency therefore reveals itself to be just another market based commodity, only valuable because others want it, or not because they don't. Like Gold, or oil, whose valuations are also based on speculative tendencies, rather than on anything real. Except unlike gold and oil, which have practical uses other than "just buying stuff" crypto itself is not even something you can change into anything other than just other forms of wealth. It is a wealth carrying commodity in this sense, but with very little practical fungibility.

Which, surprisingly enough is exactly like fiat currency at the end of the day. That then begs the question then: if fiat currency already is a thing, why would we need a cryptocurrency that does exactly the same thing? The answer is in who controls the currency. The crypto folks will say that this is democracy wresting the power of value away from the evil state, which is horribly opaque and ruins lives by using currency as an instrument of foreign policy. Just another restatement is "State Bad because me not state..." Cryptocurrency is founded as a direct competitor of the State in one of its most basic functions, which is to back and ensure the value of a common medium of exchange. It takes very specific aim at the concept of sovereignty.

But who backs Cryptocurrency, if not the evil state? In theory its the block chain, but lets be real again: its actually just the same people who determine the value of the cryptocurrency in the market. We're not talking about the mom and pops out there who are like "Hmmm, I have a few extra Rubles this month, I think I'll buy a Cryptocoin." No, the value of the currency is not set by that couple, or a million couples just like them. The value is set by the huge institutional investors, who move billions of rubles around in trades every day, from one commodity or another. If that investor says that they think Crypto is worth an investment, their act of investing will drive up the value of that commodity. Just like every other commodity out there. Not that we are saying there is anything particularly wrong with that: We just want the crypto people to be honest about it. And by claiming its the democracy of the market, they certainly are not, which undermines any theoretical justification for establishing an alternative to the status quo of the State-based currency.

Crypto then is shown to be a tool that the wealthy use to aggrandize their wealth. Do you think if Miramar invests in something in the KalSiE, it won't make other institutional investors follow suit, if for no other reason, than for fear of missing out? And do you think that if Miramar divests in something, others won't follow it? That would be insane if you did. Since the wealthy therefore are the primary beneficiaries of crypto, we see then who its really for. Of course the wealthy would be interested in something that acts just like fiat currency and is valued exactly like market based currency, but isn't controlled by the State. Of course they would. Because they use it to get wealthy. And since its market based, the liberals will argue that there is nothing anyone can or should do to stop wealthy institutional investors from being able to invest or divest in things, regardless of what that does to the miniscule life savings of mom and pop who also invested trying to secure a nest egg for the future, but were wiped out one day because Miramar was losing a fraction of a cent on each cryptocoin and decided to put its money elsewhere. Miramar will be fine, while millions of small timers will be wiped out. And Miramar isn't exactly establishing a "survivors fund" for the people whose lives are ruined by their financial decisions.

This sets investors up as competitors against the State. And serves to undermine national interests. If I am investor and have a choice of investing in some thing, or some thing else, both identical in function and action, and one has less restrictions on it and I can more directly control it, of course I will choose the one I can control over the one I don't control. As a rational individual. Because that's what a reasonable person with my same capacity for action and same desire for individual autonomy would do in that case. However, in most societies, especially liberal nations, political power is denominated in units of wealth. Kalistan has thankfully striven to undermine this connection between wealth and power, but most nations of the world still denominate their political influence in terms of dollars, or pounds, or fleurs or dinar or whatever. And if I control a system that theoretically allows me to print money, as successful cryptocurrency schemes do, I am basically also printing political power, and substituting what is good for society with what is good for me.

Ergo: I get out of the theater while everyone else dies. What do I care? I survived.

I find myself less willing to support things that are considered social goods, because I don't benefit from them myself. Things like poverty prevention, housing for all, food for all, peace, medical treatment, and in an especially ironic twist, environmental regulations, because they undermine my profitability, and I don't specifically benefit from them. And since I am printing my own political power by manipulating markets, my vote will almost always outvote the masses who need all of these things. I don't care: I don't need the state to provide these things, when I can get them myself and not even put a dent in my vast wealth. And the state listens to me when I tell them I want my taxes lowered, the nation's defense budget increased, and some rinky dink developing nation without a military invaded to make it easier for me to do business there, whether or not that benefits the people of the country at all. And whether that is even in the National Interest in any way.

I also get the government to prefer trade policies that benefit me, including financial liberalism policies that allow me to move my money beyond the reach of the greedy state who just wants to take my money to give to poor people. The issue with that of course is that liberalization works both ways: It opens the door for others to come into this country and do shady things as well, like buying thriving domestic industries, laying off most of the work force and parting the company out for profit maximization and then writing off whatever is left. To keep those investments here, the State will ultimately make policies beneficial to others which seek to exploit our openness, including those that undermine environmental sustainability. We sacrifice our sovereignty with every demand from a foreign nation that we capitulate to so they will keep their investments here. And after a while, we aren't a state anymore, but a colony. But I never had a reason to defend my nation from that happening, because my money is in a separate system called Cryptocoin, which I can move all over the place. Until a bigger fish gets into the market and ruins me the way I ruined the moms and pops before. And then I am without a fortune, and without a sovereign nation.

You may object that all of this is also possible with fiat currency. We know because this is how companies act in actual liberal economies. Like voracious vampires that prey upon the life blood of countless millions. Yes, that is true: Capitalists do this. But, the one thing a national currency has over crypto (remember, I said they were basically the same thing) is that there is a Central Bank which is, at least in theory, governed by institutional rules and oversight which can actually control a lot of this sort of excess if they starts undermining the public good. To be clear, capitalism is corrosive to the public good, the same way that putting 2000 people into an auditorium with only four exits and then deliberately lighting the theater on fire is corrosive to the public good. But in a state based currency, at least, in the presence of political will, we can control the excesses, and limit and channel the damage the destructive tendencies of liberal capitalism has. Or, in our analogy, at least the theater has its own fire department in case the place starts on fire. In crypto currency, it merely trusts the panicking theater goers to go fight the fire.

This is a grim scenario, but what is more grim is that most cryptocurrencies fail, and by fail, I mean catastrophically. Few Crypto-schemes end up with a long profitable career. So what happens to most of the wealth that was locked up in the multitudes of failed ones? Well, you guessed it: It goes right into the pockets of the large institutional investors that had the ability to get out before the whole thing collapsed. They took the payout, and in doing so, ensured that everyone else would be left holding the bag of sewage. Most schemes end up being nothing but a transfer of wealth upwards. Institutional investors know this, the little guys don't.

At the end of the day, crypto currency, which trusts the market to regulate it, when the market is a concept rather than an actual institution, with institutional actors, who possess and wield institutional power to prevent abuse and corruption, opens itself up to and fully encourages the worst impulses of economic actors and then ties the hands of anyone who would do anything about it. It's undermines the political demands for social goods in the society, it encourages the state to create policy for the benefit of institutional investors, and it causes the state to go to war, destroy the environment, and open itself up to malicious entities who themselves have no problem using state power to weaken and harm other nations. It does this by creating a competing legitimacy that takes aim at the foundations of state sovereignty itself, and it only benefits the wealthy and powerful, at the expense of everyone else.

We cannot support the proliferation of crypto-currency in Kalistan, and we encourage our government to flat out outlaw it, because it is harmful to the National Interest and the public good. Kalistan must not fall for the false promises of Cryptocurrency: these market based "solutions" only create problems for everyone.

@TheNational